Text of interview, CNBC - THE MONEY WHEEL
TECH '97 WITH BRUCE FRANCIS
SEPTEMBER 24, 1997
Kevin: A leading networking company says its bold move to cast its
own net wider is working.
Susie: And joining us now with the latest is Bruce Francis with
Tech '97. Hello, Bruce. You have a big interview here.
Bruce: Sure do, Susie and Kevin. Good morning, everyone. After the
bell last night, 3Com reported pre-charge earnings of 48 cents a
share, in line with Wall Street expectations. 3Com says the
positive results are an indication that its merger with modem king
U.S. Robotics is paying off. 3Com up 5/8 at 52 5/8. Joining us
with a look ahead is Eric Benhamou, CEO of 3Com. Mr. Behamou
joins us from Stanford, California this morning. Eric, thanks
for being with us.
Thanks, good morning.
Bruce: Why is the merger working other than those bottom line
results that were in line?
Well, we set some very aggressive time tables to make a key
decision to set the new company on a new track, a new
trajectory. We've been able to move very briskly through all
these decisions. Right now we have, for example, been able to
rationalize product strategy, distribution strategy, branding,manufacturing and it feels like now most of our focus
has now turned to the outside to our customers, our competitors
as opposed to figuring out how we will run the company.
Bruce: Eric, you're a veteran of many, many technology mergers.
Everyone says, though, that tech mergers in general don't work.
That's the first line reaction to so many mergers that we cover
here. What are you -- what's the 3Com difference? How do you make
it work?
Well, I would say in general in our industry, transactions have
had a much better track record than perhaps other industries. The
nature of what we do, which is the networking business, forces us
to do things better, faster because all of our products have to
be interruptable (ph). So it forces us to achieve levels of
integration on a much tighter timetable than perhaps other
industries. In other words, the very products that we build,
networks, help us become one company faster.
Bruce: You have quite a bit of competition on the low end
recently from Intel, and Intel said at its analyst meeting this
spring that they were going to step up their efforts there. How
do you think they've been doing and what kind of lunc have they
been eating from your table?
Well, Intel has been a very strong competitor for us in network
interface card business for several years, and more recently
their focus particularly in the fast ethernet segment. But
despite their efforts, we've been able to gain share on them, and
this past quarter we believe we continued our share gains. We
probably have close to 50% of the market in fast network interface
cards, and we believe that we have not only a product advantage
but a reputation advantage from customers
Bruce: As PCs become more connected and that becomes the default
assumption for especially for corporate PCs, isn't it a matter of
time before Intel just says hey, why don't we build this in right
to the microprocessor? And what sort of implications would that
have for 3Com?
Well from a technical standpoint, we believe this approach is
flawed. We believe that the communication subsystem of a personal
computer is very different from its processor. So even if it gets
integrated inside the PC which is beginning to be the case in the
case of most of the leading brands, it will reside on a separate
area of the mother board or a separate card. In fact, recently we
signed an agreement with Compaq on their configure to order
program to enable Compaq customers to buy essentially
network-ready Compaq computers with 3Com equipment inside.
Bruce: Speaking of agreements, you also announced yesterday an
agreement with IBM and they're going to make their own version of
the Palm Pilot which has been very, very successful. Is that the
pattern that we should expect to see going forward? Will there be
other PC OEMs, original equipment manufacturers, who will design
their own branded pilots?
There may be. The agreement with IBM has a lot of significance
because IBM is so strong in the traditional corporate environment,
and will view the Palm Pilot Platform as a great PC companion for
corporate PC users. So we believe that the IBM sales force has
been so successful selling products like the Think Pad product
line into corporations will do a good job with Palm Pilots.
Bruce: So the agreement with IBM is not exclusive and it sounds
like you consider it a strategic move for 3Com to expand those
agreements?
Yes, it is not exclusive and we believe that other agreements are
possible in that same area.
Bruce: Also recently the deal between Worldcom subsidiary Uunet
and AOL for their ANS subsidiary, in the view of some has
concentrated Internet assets really in the hands of one entity
here. Does that have implications for people who supply equipment
that it's deployed in these kind of networks?
In the near term, probably not a lot. But over time, I wouldn't be
surprised if this new powerhouse of network access services would
try to homogenize its network equipment. We believe this creates
opportunities for us because we built the majority of the America
Online point of presence and most of our customers in that space
tend to be the larger Internet service providers. We have a lot
of experience with very large networks.
nasdaq!
o~~~ O |
